BY EDWARD WELSCH, Times of Northwest Indiana Washington Bureau
WASHINGTON | Gasoline has the best advertised sticker price in America. Prices scream at drivers from atop 30-foot poles at nearly every highway exit -- and lately no one likes what they're seeing.
The national retail average price for gasoline reached $2.24 per gallon last week, up 26 percent from the beginning of the year, according to the American Petroleum Institute.
As a testament to the political weight the price at the pump carries, it was the first issue President Bush tackled -- before Iraq, before Social Security -- when he had a news conference in Washington last month.
"Millions of American families and small businesses are hurting because of higher gasoline prices," Bush said.
The president blamed the high prices on foreign energy dependence and cited developing "promising new sources of energy, such as hydrogen, ethanol or biodiesel," as a key step toward energy independence.
The House version of the energy bill, passed last month, requires refineries to mix 5 billion gallons of renewable fuels, like ethanol, into gasoline per year.
Ethanol can be produced from corn or almost any grain or grain byproduct -- even expired beer. A renewable fuel standard that would create a market for ethanol portends a huge economic windfall for America's agricultural heartland.
But the cheers coming from the rural Midwest are being met by grumbling from America's oil industry.
The American Petroleum Institute and the National Petrochemical Refiners Association are opposing a bill proposed by Sen. Dick Lugar, R-Ind., and Sen. Tom Harkin, D-Iowa, that would push the ethanol standard even higher, increasing it to 8 billion gallons by 2012.
"We support the 5 billion gallon level," said Edward Murphy, a spokesman for American Petroleum Institute, which represents oil companies.
"But, to be perfectly honest, it's larger than we thought was necessary. We started in those discussions at around three and got to five largely to satisfy the ethanol agricultural interest," he said.
"If you enlarge the number beyond five, then you do in fact force ethanol into areas where it is more expensive to use it," Murphy said.
Sen. Evan Bayh, D-Ind., and Harkin sent a letter to Energy Secretary Samuel Bodeman last week, requesting that he investigate oil companies' refusal to blend more domestically produced ethanol into gas supplies.
An increased renewable fuel standard would help promote the growth of local ethanol industries, like the ethanol plant scheduled for a July construction date in Rensselaer in Jasper County.
Iroquois Bio-Energy Co. General Manager Keith Gibson said the plant would contribute about $60 million to the local economy from corn stock and chemical supply sales, and would employ from 32 to 34 people.
"I think it's a good place to start for our country," Gibson said. "We are obviously very dependent on fossil fuels and we need to reduce our future dependency."
The reason it is more expensive to use ethanol-blended gasoline is "you force it into areas with more air-quality problems, where you have to produce a special blend of gasoline to mix with the ethanol," said Murphy, of the American Petroleum Institute.
The Clean Air Act of 1990 says large urban areas with air quality problems, such as New York, Los Angeles and Chicago, must blend oxygenates into their gasoline to decrease emissions. Blended gasoline in those states costs more to produce and, consequently, is more expensive at the pump, Murphy and others said.
But figures provided by Ed Swinderman, petrochemical consultant at Jim Jordan and Associates LLP in Houston, show that, for the consumer, the cost of using ethanol in the blend ends up being about the same as the cost of using another oxygenate, like methyl tertiary butyl ether, or MTBE.
Ethanol and MTBE are sources of oxygen that make gasoline burn cleaner, but ethanol is renewable and more environmentally friendly, Monte Shaw, spokesman for the Washington, D.C.-based Renewable Fuels Association, said.
MTBE is an additive that makes gasoline burn cleaner, which helps refineries meet air emissions requirements. But just a few drops of MTBE could render a swimming pool full of drinking water too foul smelling to consume.
The Environmental Protection Agency has not determined conclusively that MTBE is harmful to human health, but said preliminary evidence suggests MTBE may cause cancer in high doses. It recommends a concentration no higher than 40 parts per billion in drinking water.
Swinderman, the petrochemical consultant, compared prices from the New York harbor area, since, unlike Chicago, it used both MTBE-reformulated and ethanol-reformulated gasoline. Ethanol reformulated costs $1.364 per gallon, while MTBE reformulated cost $1.398 per gallon, before taxes and markup. Even after accounting for ethanol's slightly lower energy output, a buyer still saves approximately 1 cent per gallon on ethanol-reformulated gas over the cost of MTBE-reformulated gas.
Murphy, the petroleum institute spokesman, said imposing a set standard for renewable fuels on the gasoline market is against free market principles, an argument echoed by the National Petrochemical and Refiners Association.
"Any supplier in the marketplace needs to be able to stand on their own and respond to consumers' demands. If the only way they can do that is to force consumers to (use renewable fuels), we think that's bad public policy," Murphy said.
But oil companies, instead of consumers, are the ones that decide whether to put ethanol in their gas, said Shaw, spokesman for renewable fuels association. And they are not putting enough of it in for ethanol producers to sell their product in the United States, he said.
"We're going to pay to ship it all the way to Asia, while they are importing $1.50 (a gallon) gasoline," Shaw said. The $1.50 price is before taxes and markup, which push it up to the $2.24 level.
Iroquois Bio-Energy plans to build on a 69-acre site near Rensselaer. The plant is projected to process about 14.3 million bushels of corn a year into 40 million gallons of fuel-grade ethanol.
Plans for a farmer-owned ethanol plant near Lincoln, Ill., were announced in late 2004. All total, 16 new ethanol plants are under construction across the nation, in addition to 81 already operating, Shaw said.
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